Power Politics

By Ware, Michael | Public Finance, May 7, 2010 | Go to article overview

Power Politics


Ware, Michael, Public Finance


ONE OP THINGS that struck me while watching the election coverage was how quickly saving the planet has become the After Eight mint of the policy menu. Nice to have, of course, but maybe a bit selfindulgent and only to be tackled after we have digested the weightier issues of Gordon's gaffe or Nick Clegg's expenses.

This is clearly a mistake, albeit one shared by most commentators. Changing how we produce and consume energy in this country has the potential to make a much bigger impact on the public purse than fantasy efficiency savings or clamping down on a few thousand non-dom taxpayers.

We are actually in the midst of an industrial revolution from 'micro-generation', where individuals, small firms and even the public sector produce lowcarbon heat and power. Previously wacky technologies seen only in California, such as solar panels and wind turbines, are now mainstream and on sale at Tesco.

But the potential remains largely untapped. In the 90 minutes it will take England to lose in the quarter- finals of this year's World Cup, the sun will beam enough light on to our planet to power global energy needs for two years. Not a lot of people know that, and fewer still in the public sector are doing anything about it.

According to the Office for National Statistics, the public sector consumes energy equivalent to 7 million tonnes of oil every year. Only a tiny fraction of this is derived from renewable sources. The sector also emits 9.7 million tonnes of CÜ2, which is at least four times more than the emissions of the domestic aviation industry.

So if you want to cut your carbon footprint, keep taking cheap flights but stop using your local library.

On a more serious note, the public sector has the largest collection of roofs, buildings and windy open spaces in the UK and hence has the potential to be at the forefront of a green revolution. But with the exception of a few brave pathfinders, most are still buying energy made from dirty fossil fuels and mainly from the French.

So why is this? The primary objection is, of course, money. All micro-generation requires an upfront investment followed by an uncertain but definitely long payback period. Our politicians and, let's be honest, the electorate, have an innate preference for short-term benefits and long-term costs. The Spend Now to Maybe Save Money Later Party did not trouble anybody in the election.

The outgoing government, to its credit, did try to create a more amenable financial environment by introducing Feed-In Tariffs. In essence, these work by giving micro-generators a cash payment for every unit of energy produced, even though they consume it themselves, plus a cash payment for anything exported back to the grid. A typical medium-sized school with solar panels on the roof, a wind turbine in the grounds and a biomass boiler in the basement could make £20,000 per year in income and savings.

The tariffs are designed to give an internal rate of return of 8%-10% for electricity and 10%-12% for heat. Not spectacular but not shabby in a world where bank base rates bump along at 0.5%, And, if your reserves are looking a bit thin post-Iceland, the banks are becoming more interested in helping. The prospect of long-term, governmentbacked subsidies and positive PR is a welcome relief from banker bashing and a lot better prospect for investment than failing football clubs or long-dated Greek government bonds.

Much to my wife's dismay, I have become fixated on this potential and spend our summer car journeys pointing out the roofs of schools, hospitals and council offices, all bathed in glorious but wasted sunlight while their officials swelter inside dealing with the problems of spending cuts and redundancies. …

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